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High oil prices good for Texas' budget

AUSTIN — Higher oil prices may make consumers miserable, but unrest in the Middle East could mean a tax revenue windfall for Texas’ tight budget.

The money is coming from Texas oil producers who have increased their rig counts to take advantage of prices that spiked in mid-February, when fighting in Libya squeezed off shipments that had supplied nearly 2 percent of the world’s oil.

A percentage of the price from every barrel of oil produced in the state — now fetching about $104 each — goes into the state’s Economic Stabilization Fund, commonly known as the Rainy Day Fund.

It’s way too early to know how big the fund will get or whether the Legislature will overcome political opposition to using it. The Texas House will take up a proposal today to tap the Rainy Day Fund to pay off $3.2 billion in state debt due in August.

But most experts agree: The fund will get bigger than current projections. A lot bigger. Based on an estimate of oil at $70 per barrel, the state comptroller forecast a $9.4 billion balance in the fund at the end of the next budget period. Prices have been well above that since last summer.

Stuart Greenfield, an economist and former revenue estimator who worked for three Texas comptrollers, has studied the numbers and predicts the fund could reach $11.6 billion if left untouched and prices stay high.

“If they take $3 billion out of it, they’re still going to have a pile of money,” said Greenfield, who now teaches economics at Austin Community College.

House leaders say that is probably the most the fiscally conservative body is willing to spend. The Senate is looking to tap more than that, setting up a budgetary battle between the two chambers.

Analysts have mixed expectations for how long high oil prices can be sustained.

Amrita Sen, an oil analyst for Barclays Capital, says prices are likely to stay high for a while. That’s because fundamental market variables — like demand — have remained strong while unrest plagues oil-producing countries.

“The fundamentals were strong. If they weren’t ... we wouldn’t have seen this reaction,” Sen said. “It’s a combination of those two that’s leading to prices being at current levels.”

She said upcoming elections in Nigeria and simmering tensions in Bahrain could keep prices high, even if Libya begins exporting oil again. But with gas prices approaching $4 a gallon, demand could take a hit before the start of the summer driving season.

“These markets move on a dime,” said Billy Hamilton, a former state revenue estimator who spent decades in the Texas Comptroller’s Office. Even though Hamilton said the fund balance will likely be higher than predicted, he said years of watching the oil market have taught him to use caution.

“People always say ‘this time it’s all going to go up and it’s never going to come down,’ but it does tend to come down.”

Even so, for lawmakers writing the next two-year state budget, the money isn’t there until Comptroller Susan Combs says it’s there. So far, she’s sticking with the $9.4 billion estimate she made in January.